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I was a super bull of long-term bonds. I stated my case over 3
years ago with a yield target on 30-year maturities of 2.5%. Back
then, the timing and structure looked right for another run to
new highs. Discussions about hyperinflation were premature.

The pre-condition I had been waiting for has now arrived. In my
opinion, we have seen the end of the bull market in bonds.

There is a delicate balance in time, where mega trends and short
term trends meet. Price has now shaped reasoning and convinced
investors of future stability, and such conviction could not come
at a worse time. You see, we are heading toward the D.I.I.G. Can
you dig it?

The Demographically Influenced Investment Gap is one giant mismatch of assets to
liabilities. The growing future needs of financing in equities
and bonds cannot be matched with future available disposable
savings.

This will create great opportunities for long term patient
investors as assets compete for your dollars.

Hyperinflation in the sense that people understand it today will
not surface as expected as it is not straightforward.

The roadmap that we had been following involved removing
investment choices one after another. We had the big boom of
equities back in the 1990’s, when boomers converted their term
deposit gradually to stock funds. It represented the first bubble
and as one can see, we are at similar levels of that decade.

Following that first stock crash, we had an exodus of investors
moving to real estate and there we created our second bubble.
Essentially, both stocks and real estate have been written off as
principal choices of investment, and what remains and is now the
prime focus of investing, are bonds.

As a pre-condition to hyperinflation this choice must be removed
as well and it will be.

In the end, the herd will move to whatever play has not hurt them
already.

Lost choices remain the key driver of the herd crowding into hard
assets.

Lamoureux & Co.

My own view of the coming loss of confidence or of a
crystallizing moment is not based on high inflation but its
substitute, i.e., credit risk. It might be a philosophical
difference to other views, but in the end, the result is the
same. Bonds have tended to act as expected as risk preference
shifted. However, bonds now have neither a credit risk premium
and nor an inflation risk premium. Our proprietary model is
clear: treasury paper of 30 years has the correct valuation of
3.50% and above. That is the level we would feel confident as
buyers.

There will be short-term long opportunities in bond market, but
they will be within the context of a very long term bear market.
The coming volatility in rates will be huge an unnerving for the
regular investor who opted for the stability of his capital. In
my opinion, being both long and short would be an interesting
proposition.